[Federal Register Volume 68, Number 29 (Wednesday, February 12, 2003)]
[Notices]
[Pages 7154-7156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3489]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25928; 812-12366]


Oppenheimer Select Managers, et al.; Notice of Application

February 6, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as certain disclosure 
requirements.

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    Summary of Application: Applicants request an order that would 
permit them

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to enter into and materially amend subadvisory agreements without 
shareholder approval and would grant relief from certain disclosure 
requirements.
    Applicants: Oppenheimer Select Managers (``Select Managers'') and 
OppenheimerFunds, Inc. (``OFI'').
    Filing Dates: The application was filed on December 18, 2000 and 
amended on February 6, 2003.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on March 3, 2003, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, 6803 South Tucson Way, Englewood, CO 80112.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Select Managers, a business trust organized under the laws of 
Massachusetts, is registered under the Act as an open-end management 
investment company. Select Managers is currently comprised of six 
series (each a ``Series''),\1\ each with a different investment 
objective and policies. Shares of some Series may be sold as a funding 
option for variable life insurance policies and variable annuity 
contracts issued by an insurance company.
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    \1\ Applicants also request relief with respect to future series 
of Select Managers and any future registered open-end management 
investment companies or series thereof that (a) are advised by OFI 
or an entity controlling, controlled by or under common control with 
OFI, (b) use the multi-manager structure as described in the 
application, and (c) comply with the terms and conditions stated in 
the application (included in the term ``Series''). Select Managers 
is the only existing investment company that currently intends to 
rely on the order. If the name of any Series contains the name of a 
Subadviser (as defined below), it will be preceded by OFI.
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    2. OFI is registered as an investment adviser under the Investment 
Advisers Act of 1940. OFI currently serves as investment adviser to 
each Series.
    3. Select Managers (on behalf of each Series) has entered into 
separate investment management agreements with OFI (each, an ``Advisory 
Agreement'') that were approved by Select Manager's board of trustees 
(``Board''), including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), and either the initial shareholder of the 
Series (before the Series' shares are offered to the public) or the 
Series' public shareholders.\2\
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    \2\ The term ``shareholder'' includes variable life insurance 
policy and variable annuity contract owners that are unitholders of 
any separate account for which a Series serves as a funding medium.
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    4. OFI may delegate day-to-day portfolio management 
responsibilities for a Series by entering into an investment 
subadvisory agreement (``Subadvisory Agreement'') with a subadviser 
(``Subadviser''), subject to Board approval. OFI monitors and evaluates 
the Subadvisers and recommends to the Board their hiring, retention or 
termination. Subadvisers recommended to the Board by OFI are selected 
and approved by the Board, including a majority of the Independent 
Trustees. Each Subadviser's fees are paid by OFI out of the management 
fees received by OFI under its Advisory Agreement.
    5. Applicants request relief to permit OFI, subject to Board 
approval, to enter into and materially amend Subadvisory Agreements 
without shareholder approval. The requested relief will not extend to a 
Subadviser that is an affiliated person, as defined in section 2(a)(3) 
of the Act, of Select Managers or OFI, other than by reason of serving 
as a Subadviser to one or more of the Series (``Affiliated 
Subadviser'').
    6. Applicants also request an exemption from the various disclosure 
provisions described below that may require each Series to disclose 
fees paid by OFI to the Subadvisers. An exemption is requested to 
permit the Series to disclose (as both a dollar amount and as a 
percentage of a Series' net assets): (a) Aggregate fees paid to OFI and 
Affiliated Subadvisers, and (b) aggregate fees paid to the Subadvisers 
other than Affiliated Subadvisers (``Aggregate Fee Disclosure''). If a 
Series employs an Affiliated Subadviser, the Series will provide 
separate disclosure of any fees paid to the Affiliated Subadviser.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series company affected by a matter must approve such 
matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 15(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``Exchange Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8), and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fee,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Subadvisers.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07.2(a), (b) and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities or transactions from any provision of the Act, or 
from any rule thereunder, if such exemption is necessary or appropriate

[[Page 7156]]

in the public interest and consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act. Applicants believe that their requested relief meets this standard 
for the reasons discussed below.
    7. By investing in a Series, shareholders will in effect hire OFI 
to manage the Series' assets through monitoring and evaluation of 
Subadvisers rather than by hiring its own employees to directly manage 
assets. Applicants contend that requiring shareholder approval of 
Subadvisory Agreements would impose unnecessary costs and delays on the 
Series and may preclude OFI from acting promptly in a manner considered 
advisable by the Board. Applicants note that each Advisory Agreement 
will remain subject to section 15(a) of the Act and rule 18f-2 under 
the Act.
    8. Applicants assert that many Subadvisers charge their customers 
for advisory services according to a ``posted'' rate schedule. 
Applicants state that while Subadvisers are willing to negotiate fees 
lower than those posted in the schedule, particularly with large 
institutional clients, they are reluctant to do so when the fees are 
disclosed to other prospective and existing customers. Applicants 
submit that the relief will encourage Subadvisers to negotiate lower 
subadvisory fees with OFI, the benefits of which are likely to be 
passed on to the Series' shareholders.

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. OFI will provide general management and administrative services 
to each Series, including overall supervisory responsibility of the 
general management and investment of the Series' assets and, subject to 
review and approval of the Board, will (i) set the Series' overall 
investment strategies, (ii) evaluate, select and recommend Subadvisers 
to manage all or a portion of a Series' assets, (iii) allocate and, 
when appropriate, reallocate the Series' assets among multiple 
Subadvisers, (iv) monitor and evaluate Subadviser performance, and (v) 
implement procedures reasonably designed to ensure that Subadvisers 
comply with the relevant Series' investment objective, policies and 
restrictions.
    2. Before a Series may rely on the order requested herein, the 
operation of the Series in the manner described in the application will 
be approved by a majority of each Series' outstanding voting securities 
as defined in the Act, or, in the case of a Series whose public 
shareholders purchase shares on the basis of a prospectus containing 
the disclosure contemplated by condition 3 below, by the initial 
shareholder before such Series' shares are offered to the public.
    3. The prospectus for each Series will disclose the existence, 
substance and effect of any order granted pursuant to the application. 
In addition, each Series will hold itself out to the public as 
employing the ``Manager of Managers'' structure described in the 
application. The prospectus will prominently disclose that OFI has 
ultimate responsibility, subject to oversight by the Board, to oversee 
the Subadvisers and recommend their hiring, termination and 
replacement.
    4. Within ninety days of the hiring of a new Subadviser, OFI will 
furnish shareholders of the applicable Series all information about the 
new Subadviser that would be included in a proxy statement, except as 
modified to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of a new Subadviser. To meet this obligation, 
OFI will provide shareholders of the applicable Series, within ninety 
days of the hiring of a new Subadviser, with an information statement 
meeting the requirements of Regulation 14C, Schedule 14C, and Item 22 
of Schedule 14A under the 1934 Act, except as modified by the order to 
permit Aggregate Fee Disclosure.
    5. No trustee or officer of the Series nor director or officer of 
OFI will own directly or indirectly (other than through a pooled 
investment vehicle that is not controlled by such person) any interest 
in a Subadviser except for (i) ownership of interests in OFI or any 
entity that controls, is controlled by or is under common control with 
OFI; or (ii) ownership of less than 1% of the outstanding securities of 
any class of equity or debt of a publicly traded company that is either 
a Subadviser or an entity that controls, in controlled by or is under 
common control with a Subadviser.
    6. At all times, a majority of the Board will be Independent 
Trustees, and the nomination of new or additional Independent Trustees 
will be placed within the discretion of the then-existing Independent 
Trustees.
    7. When a Subadviser change is proposed for a Series with an 
Affiliated Subadviser, the Series' Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
applicable Board minutes, that such change is in the best interests of 
the Series and its shareholders and does not involve a conflict of 
interest from which OFI or the Affiliated Subadviser derives an 
inappropriate advantage.
    8. Each Series will disclose in its registration statement the 
Aggregate Fee Disclosure.
    9. At all times, independent counsel knowledgeable about the Act 
and the duties of Independent Trustees will be engaged to represent 
each Series' Independent Trustees. The selection of such counsel will 
be placed within the discretion of the Independent Trustees.
    10. OFI will provide the Board, no less frequently than quarterly, 
with information about OFI's profitability on a per-Series basis. This 
information will reflect the impact on profitability of the hiring or 
termination of any Subadvisers during the applicable quarter.
    11. When a Subadviser is hired or terminated, OFI will provide the 
Board with information showing the expected impact on OFI's 
profitability.
    12. OFI will not enter into a Subadvisory Agreement with any 
Affiliated Subadviser without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Series.


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-3489 Filed 2-11-03; 8:45 am]
BILLING CODE 8010-01-P